Construction Due Diligence: Sooner Is Always Better than Later


The recent economic downturn in real estate development and construction has significantly and negatively impacted contractors, subcontractors, and material suppliers. Non-payment of receivables is an ongoing problem even in good times, but even more so during the current recession and recovery (albeit slow) period. Having knowledge of one’s alternative available legal remedies gives contractors, subcontractors, and material suppliers a distinct advantage, especially as the market for local contractors, subcontractors, and material suppliers is growing to encompass the entire country.

When a contractor, subcontractor, or material supplier “sells” a job, it is selling three things - “labor, materials, and credit.” The sales department job is to sell the “labor and/or materials,” while the credit department’s job is to evaluate whether to extend credit on such sales. These conflicting goals could result in friction between the sales department and credit department. In fact, it has been said that the ultimate conflict in life is not between good and evil but rather between sales and credit. However, if the parties work together towards an acceptable solution balancing the sale with the extension of credit, ultimately the company will benefit. This is where the construction due diligence process and understanding the laws that benefit contractors, subcontractors, and material suppliers is valuable.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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